Financial Overview and Performance Metrics
Total revenue for Telos Corp (TLSRP.PFD) reached $26.4 million, reflecting an 11% increase compared to the previous quarter. The revenue from Security Solutions, which constitutes a significant portion of the overall earnings, hit $21.9 million—accounting for 83% of total revenue and marking a 20% sequential growth. In contrast, revenue from Secure Networks amounted to $4.5 million, representing 17% of the total revenue. The company achieved a GAAP gross margin of 40.3%, which is an impressive growth of nearly 600 basis points year-over-year. Furthermore, the cash gross margin also improved, increasing by nearly 900 basis points year-over-year to reach 47%. Adjusted operating expenses saw a decline of $2.4 million sequentially, and adjusted EBITDA showed significant improvement, moving from a loss of $4.2 million to a reduced loss of $200,000.
Cash Flow and Future Projections
Despite the positive revenue trends, cash flow from operations reported an outflow of $10.5 million, while free cash flow faced a greater outflow of $14.8 million. Telos Corp indicated a significant expansion of its TSA PreCheck Enrollment Centers, which increased from 26 to 218 locations in 2024, with ambitions to reach 500 by year-end. Looking ahead, the company has set its revenue guidance for the first quarter of 2025 between $28.2 million and $30.2 million, suggesting a sequential growth of 7% to 15%. However, an adjusted EBITDA loss is anticipated in the first quarter, estimated to range from $1.8 million to $800,000, while positive cash flow is expected.
Insights on Government Contracts and Revenue Recognition
Telos Corp’s recent performance has been influenced by changes in government administration, with CEO John Wood noting that although the new administration presents opportunities, it has also caused delays in the awarding of single contracts. To navigate these challenges, Telos is focusing on task orders under existing contracts. CFO Mark Bendza added that revenue recognition for the Defense Manpower Data Center (DMDC) and Department of Homeland Security (DHS) programs is contingent on the mix of third-party solutions, which tend to lean more towards software. This aspect may delay first-year revenue recognition, but cash flow advantages should materialize as orders are fulfilled, bolstering the positive cash flow outlook for 2025.
TSA PreCheck Revenue and Market Expectations
Regarding TSA PreCheck revenue, Bendza confirmed that it is heavily reliant on the number of enrollment centers. With the current 218 centers, Telos is on track to capture a substantial portion of the $200 million market. However, the full revenue potential will be realized as expansion continues. For the first quarter and the entirety of 2025, Bendza expressed optimism about cash flow dynamics, predicting Q1 will benefit from working capital liquidation. For the full year, even if adjusted EBITDA remains at break-even, Telos expects to achieve positive free cash flow, largely due to favorable changes in working capital.
Further Details on Cash Flow Dynamics
Bendza elaborated on the cash flow situation for 2025, anticipating a negative free cash flow of around $8 million before accounting for working capital adjustments, which should ultimately lead to positive free cash flow throughout the year. For additional insights and a complete transcript of the earnings call, further resources are available.
